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Microsoft has just announced it will buy most of Nokia’s devices and services business for €3.79 billion ($5 billion) and will spend a further €1.65 billion ($2.2 billion) to license Nokia’s patents — making a total cost of €5.44 billion ($7.2 billion) which will be paid out in cash.

After the transaction goes through, several Nokia executives will transfer to Microsoft, including Nokia CEO Stephen Elop, Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber. In total, about 32,000 employees are expected to transfer from Nokia to Microsoft.

This means that Elop will be stepping down as Nokia CEO. Nokia announced in a statement that Risto Siilasmaa will assume an interim CEO role for Nokia, while Stephen Elop will take on the role of Executive Vice President, Devices & Services. In an email to employees, Microsoft CEO Steve Ballmer says that Elop will head to Microsoft to lead an expanded Devices team, “which includes all of our current Devices and Studios work and most of the teams coming over from Nokia”.

Microsoft notes that purchasing Nokia’s devices and services business, as well as its patents, is key to “furthering the company’s transition to a devices and services company”. It will build on the partnership with Nokia announced in February 2011 that saw a series of Nokia’s Lumia smartphones being released.

With this move, Microsoft says it aims to accelerate the growth of its move into mobile devices via faster innovation, increased synergies, and unified branding and marketing. Microsoft CEO Steve Ballmer says:

Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services… In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.

In it statement, Nokia says it plans to focus on three of its other businesses: network infrastructure and services, mapping and location services, as well as technology development.

Nokia interim CEO Risto Siilasmaa, also the Chairman of the Nokia Board of Directors, says:

After a thorough assessment of how to maximize shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia and its shareholders.

Microsoft’s move to purchase Nokia’s devices and services business is a smart one, considering that Nokia has been one of its most loyal partners to date (and this could probably explain the rumor that Nokia is making a Windows RT tablet).

It has been nearly three years since the first version of the Windows Phone arrived in the smartphone market and Microsoft is keen to see it gain traction faster to become a worthy competitor to iOS and Android globally. The only way to drive this forward earnestly would be to take over Nokia’s devices business and integrate it even closer with the company.

Its move also marks Microsoft’s commitment and ambition toward making it big in the mobile market. Could this possibly render the Windows Phone a threat to the dominant operating systems now (especially after positive news yesterday from Kantar that said the Windows Phone has picked up pace across five major European markets)?